John Key, New Zealand's prime minister, delivers the keynote address at a business roundtable in Seoul, on July 6, 2010. Photographer: Seokyong Lee/Bloomberg
When he was Merrill Lynch & Co.’s global head of foreign exchange in London in 1998, the ever-cheerful John Key was nicknamed “the smiling assassin” after he fired some 50 members of his team.
Today, as prime minister of his native New Zealand, population 4.4 million, he’s using his trademark grin to woo billionaire immigrants, foreign investors and high-end tourists to one of the planet’s most remote developed countries, Bloomberg Markets magazine reports in its October issue.
Key, 49, even took time out from a session of the United Nations General Assembly last year to appear on the Late Show with David Letterman to talk up his island nation in the southwest Pacific.
He encouraged visitors to take a “convenient” 20-hour, one-or two-stop flight from New York to the former British colony.
“It’s like England without the attitude,” he wisecracked, adding: “Visit in the next 30 days and I will pick you up at the airport.”
Key was joking with Letterman, yet his underlying message was serious. Since he took office in November 2008, the prime minister has cut income and corporate taxes, offered scholarships for business executives and taken personal control of the country’s tourism ministry to boost a stuttering $125 billion economy.
‘Lord of the Rings’
New Zealand, whose snowcapped peaks and verdant valleys formed the backdrop to the Academy Award-winning “Lord of the Rings” trilogy, is struggling to rebound from its worst recession in 30 years.
Living standards as measured by per capita gross domestic product are about 15 percent lower than the average for other Organization for Economic Cooperation and Development countries, according to 2009 estimates based on purchasing-power parity.
One million New Zealanders, including one-fourth of university graduates, have moved to work overseas -- 260,000 in the past 10 years. Unemployment rose in the second quarter to 6.8 percent from 6 percent in the first.
Key says New Zealand needs to lift per capita income by 35 percent to match that of Australia, a three-hour flight across the Tasman Sea. In the meantime, he’s trying to replace departing compatriots with wealthy foreigners.
“Attracting high-net-worth individuals is critical in terms of the investments they make and the opportunities they provide for others,” Key says in Wellington, the pocket-sized capital of 180,000, where he works in an office atop a conical building called the Beehive.
‘Live Off Your Wits’
As for his currency background, it comes in most handy in political debates.
“Parliamentary question time is very much like being on a trading floor,” he says. “You live off your wits, and you feed off the environment.”
Key, who leads the center-right National Party, is pushing pro-business policies. He has trimmed the top income tax rate to 33 percent from 38 percent compared with 45 percent for Australia. Next year, the corporate tax rate will fall to 28 percent, two percentage points below Australia’s, from 30 percent. He’s trying to win free-trade agreements with India and Russia. He has cut bureaucracy so that New Zealand’s biggest city, Auckland, will be run by one local authority instead of eight. And on Aug. 9, he announced a scholarship under which New Zealand executives can get grants of as much as NZ$110,000 ($80,000) to study at top international business schools and come back to work in the country.
“Look at what he’s done; it’s quite remarkable,” says Jonathan Ling, chief executive officer of Fletcher Building Ltd., the country’s biggest publicly traded company, who often recruits executives from the New Zealand diaspora. Since Key took office on Nov. 19, 2008, Fletcher shares have gained 30 percent to NZ$7.40 on Aug. 23.
Key isn’t starting from scratch in luring affluent visitors. New Zealand has long been a first or second home to such investors as billionaire hedge-fund manager Julian Robertson and former Levi Strauss & Co. President Tom Tusher.
Robertson developed two of the nation’s most spectacular golf resorts, Kauri Cliffs and The Farm at Cape Kidnappers. In 2002, he bought two wineries, including Dry River, which produces what Bloomberg Markets wine and spirits columnist Elin McCoy describes as one of the New World’s great pinot noirs.
Tusher, 69, owns Blanket Bay, a NZ$750--NZ$2,500-a-night hideaway near Queenstown, and the nearby Amisfield winery. Neither man will disclose the total value of his investments.
Prime Minister’s Fan
“New Zealand is the most beautiful place on Earth,” says Robertson, 78, who oversees about $23 billion at New York-based Tiger Management LLC and spends three months a year in the country.
“I am a fan of the prime minister,” says Robertson, who is due to open his third New Zealand resort, Matakauri Lodge, this Friday. “Now they have a progressive conservative premier. I think it will be much better for them.” Key ousted the Labour Party’s Helen Clark, who’d led the country for nine years.
The prime minister’s job has been complicated -- even for a veteran currency trader -- by a New Zealand dollar that has yo-yoed between 39 U.S. cents and 82 U.S. cents in the past decade.
Hostage to the so-called carry trade, the currency -- nicknamed the kiwi after the national emblem, a chicken-sized flightless bird -- rises when foreign investors pour in money to take advantage of higher-interest-bearing assets. It falls when they pull money out.
Global Dairy Exporter
Exports and inbound tourism, which make up almost 40 percent of New Zealand’s GDP, become more expensive with a strong kiwi. That hurts a country that’s the biggest global exporter of dairy products and lamb and whose visitors account for 20 percent of foreign-exchange earnings. New Zealand suffers, although less so, when the kiwi hits lows, because imports cost more.
Key says there’s not much he can do to prevent the kiwi’s wild swings, even with his 20 years of foreign-exchange experience. What he can do is try to negotiate more free-trade agreements to compensate for barriers and subsidies that restrict access for meat and dairy products in New Zealand’s biggest markets.
OECD figures in July showed that in New Zealand, a free-trading nation, one percent of farmers’ incomes comes from subsidies, compared with 61 percent in Norway, 23 percent in the European Union and 9 percent in the U.S.
‘Most Vulnerable Nation’
“We would be the most vulnerable nation in the world to the vagaries of global markets,” says Andrew Ferrier, chief executive officer of Fonterra Cooperative Group Ltd., the world’s biggest dairy-exporting company.
A rebounding global economy is already helping Key’s prospects. Sales of milk, butter and lamb are increasing as the world emerges from its financial crisis. New Zealand’s economy is poised to grow 3 percent this year, according to the International Monetary Fund, compared with a 1.6 percent contraction in 2009.
On Aug. 23, Fonterra reported that its dairy exports rose to a record 2.1 million metric tons in the year ended July 31, buoyed by demand from China and other parts of Asia.
The prime minister is getting the benefit of the doubt from some rivals because of his personality and inspirational life story, says Mike Moore, a former Labour Party prime minister and one-time director-general of the World Trade Organization.
‘Hard Man to Hate’
“We in the Labour Party have a serious problem with John Key,” says Moore, who this month became New Zealand’s ambassador to the U.S. “He’s a very hard man to hate.”
Key grew up with adversity. His late mother, Ruth Lazar, an Austrian Jew, fled to the U.K. in 1938 to escape Adolf Hitler’s advance. In 1948, she married George Key, an Englishman. The couple emigrated to New Zealand in the 1950s.
“If mum hadn’t got to England, she would have almost certainly gone to the gas chambers like so many of her family,” John Key says.
His father died when the boy was 6 and he, two siblings and Ruth entered public housing in Christchurch, where the Keys made their way among other struggling families. He never lacked confidence.
“From very early on, I wanted two things,” Key says. “I wanted to go into business and become financially independent. Secondly, I wanted to go into politics. When I was very young, I wanted to be prime minister.”
Key’s path to riches and political power began in 1985 -- the year when New Zealand floated the kiwi, which had been pegged to a basket of currencies. He decided he could make his fortune trading the suddenly fluctuating New Zealand dollar.
He joined Bankers Trust in Auckland in 1988, so eager to succeed that he and his wife, Bronagh, slept in the green glow of a financial terminal beside their bed.
In 1995, Merrill Lynch hired him as a managing director of Asian foreign exchange in Singapore. Three months into the job, then-boss Steve Bellotti asked what Key thought of Merrill’s foreign-exchange business. “I think it sucks,” Key said.
Key told Bellotti that Merrill could be a bigger player in currencies. Bellotti, who confirms the story, shared that view.
“They had the clients and the cross-border flow in equities, fixed interest and commodities, but they were not capturing the foreign-exchange part,” Bellotti says.
Bellotti offered Key the job of global head of foreign exchange in London with the proviso that if he didn’t perform he’d be fired in a year.
“If I don’t make it in 11 months, I’ll quit,” Key replied.
Instead, it was Key who ended up sacking other people. Bellotti says Key expanded the business as they’d planned. Then came the 1997 Asian financial crisis and 1998 Russian debt default. Key was ordered to cut his 300-strong team by 50 or 60, Bellotti recalls.
“It was a very difficult environment,” Key says. “But for the survival of the business, we did what was necessary.”
Bellotti, now managing director for global markets at Australia & New Zealand Banking Group Ltd. in Sydney, says Key succeeded as a currency trader without taking big risks.
“He was not the king of volatility,” Bellotti says. “He was not the superstar outstanding athlete. He was consistent sometimes to the point of being boring. He was also a great team builder.”
Key also became wealthy. New Zealand newspapers have reported that he earned about $2 million a year in London and his fortune is now $40 million.
He’ll say only: “It was a substantial amount of money -- enough to have choices.”
By then a father of two, Key chose to quit Merrill and take a shot at becoming prime minister. He sought to improve his chances of successfully entering politics with a classy gift -- and humor -- to win over a local party official who’d invited him to a beach barbecue.
Turning up with a NZ$200 bottle of Stonyridge Larose, one of the country’s best red wines, he recommended that his host not serve it with the sausages.
“It was good wine,” Key says, beaming broadly. “I hope he still has it in his cellars.”
Key’s political debut wasn’t easy even with such schmoozing. He was selected as a National Party candidate only after a bruising intraparty contest. He faced New Zealand voters for the first time during the 2002 general election. National suffered its worst defeat ever, winning 27 seats in the 120- member Parliament. Key, who’d been chosen for one of the safest seats, escaped the rout.
“If I hadn’t challenged in such a strong seat, I would never have made it,” he says.
With so few National members in Parliament, he was promoted to finance spokesman in 2004. National lost the 2005 election and his colleagues chose him to be opposition leader in 2006.
Key has suffered reverses during his two years in office - -and digs at his background.
“It is all very well being an international money shuffler, but I thought they were part of the problem, not the solution,” Labour Party opposition leader Phil Goff says.
Key’s attempts to raise living standards closer to Australia’s are having the opposite effect, he says, noting that Australia’s economy has been growing faster than New Zealand’s and its jobless rate -- 5.3 percent in July -- is lower.
“You have to deliver, not just be a smiling face,” Goff says.
Key backed down in July on a plan to open conservation areas to mining after protesters said the move would jeopardize tourists’ and food shoppers’ image of a green New Zealand.
‘Gold and Sparkling Things’
“He did not understand the depth of feeling people have for their land,” says Helen Kelly, president of the New Zealand Council of Trade Unions. “He thought they would be attracted by the gold and sparkling things that mining would bring, but this isn’t really “The Lord of the Rings.’”
So far, most voters aren’t holding mistakes against Key. If an election had been held in early August, his National Party would have been re-elected with 54.5 percent of the vote, a poll conducted for television station TV3 found.
The poll that really counts will come when Key’s three-year term ends in November 2011 and he seeks re-election. If the world keeps buying New Zealand farm products and if former colleagues on forex desks don’t make the country’s currency too volatile, Key should be smiling for another three years.